'Not Time to Bottom Fish': As Chinese Stocks Trade Near 2021 Lows, Analyst Says There is More Room to Fall

July 28, 2021 6:19 AM EDT

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Stronger-than-expected regulatory pressure from Beijing on major tech companies has pushed local equities trading at the new 2021 lows.

The Hang Seng index recovered modestly today after dropping over 8% on Monday and Tuesday to hit the lowest levels recorded since November last year.

Although some industry experts believe the market reaction has been exaggerated, Kelvin Tay of UBS Global Wealth Management sees more room for further losses.

“I think there’s actually more room for this to actually run. I certainly don’t think this is the bottom,” he told CNBC.

One of the key factors behind his belief that Chinese stocks have more room to fall is that money managers are still assessing whether to use this pullback to get more exposure or close their existing positions.

“I think the decision is probably going to sway towards the liquidating side. I don’t think this is actually time to bottom fish,” he said.

He says the regulatory pressure comes at bad times for the Chinese stock market as the global economy is booming.

“Economic growth this year is not disputed because you have the U.S. growing at 7%, you have the eurozone recovering at 4.3%, that in turn is likely to pull the Chinese economy along with it as well,” he added.

On further catalysts, Tay comments:

“I think the first indication should come sometime this week or next from the July Politburo meeting.” This is the most likely catalyst that could yield further volatility, ahead of a major slowdown in Chinese economy and a “dramatic improvement” in the US-China relationship.

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